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Saturday, October 10, 2015

"Under-promise and over-deliver" is popular corporate speak, but apparently not a central part of the operating philosophy at ON Semiconductor (NASDAQ:ON).
Although I do think that ON Semiconductor has some good things going
for it and has done a respectable job of improving its cost structure,
there has been a trend in place here for some time of promising more
than is actually delivered.

That's an admittedly harsh opening statement on a company that, on balance, I still like. I wasn't all that fond of the shares back in March (and the price has fallen about 20% since), but the stock's performance relative to Texas Instruments (NASDAQ:TXN), Maxim (NASDAQ:MXIM), and Fairchild (NASDAQ:FCS) hasn't been too bad over the last year (or three years), though NXP (NASDAQ:NXPI)
has handily outperformed the group. With this pullback, I think the
shares are once again a more interesting prospect, particularly given
growth opportunities in wireless, computing, and autos, but for as much
as the performance of these shares may be tied to future revenue growth
and margin improvements, a stronger sense of credibility from management
may be the biggest potential catalyst of all.

I want to apologize to folks who depend on my posts here to keep up with my work - I've obviously forgotten to post some articles in a timely fashion. I'm happy to say that there's no "bad news reason" for this, and instead it's just a byproduct of being a little busy and sometimes forgetting to do it at night.

On a related note, I probably won't be writing as much this coming week (even though its earnings season), as my wife has multiple appointments and it's tough for me to "get in the groove" for a half-day or less of writing. But here's hoping the bloodwork and next infusion go smoothly on Wednesday!

Stock prices in the biotech sector are getting carpet-bombed as
investors bail out of the sector, but this is still fundamentally a
data-driven industry where good data almost always win out in the end.
To that end, Neurocrine Biosciences' (NASDAQ:NBIX) recent run of good news should encourage shareholders even as the market has turned cold on these once-outperforming shares.

Neurocrine
Biosciences remains a challenging biotech to value, due in part to the
fact that the markets that the company's lead drugs are targeting could
prove to be substantially more robust than they seem at present. Even
with what I believe to be relatively conservative assumptions, though,
Neurocrine's shares look appealingly undervalued.

Canada's AGT Food and Ingredients (AGT.TO)/(OTCPK:AGXXF)
has two characteristics that I really like in a publicly traded company
- it does something that most investors find mind-numbingly tedious
(sorting and processing pulses) and it is shifting its business up the
value chain. I can't say that these efforts have gone unnoticed, as the
shares are up about 7% since my last article and up 78% since my first article on the company
for Seeking Alpha, but I believe the company's leadership position in
pulse processing and nascent efforts in food ingredients can generate
enough cash flow growth to make these shares interesting on a long-term
basis.

While I had some concerns about Core-Mark's (NASDAQ:CORE) valuation back in March,
and there was a noticeable pullback in April that lingered for a few
months. The shares have fought back to just above break-even for the
year as this large convenience store (or "C-store") distributor
continues to deliver good same-store sales growth and EBITDA leverage.

My
concerns about the valuation are still in place, but I do still see
opportunities for Core-Mark to outperform in terms of customer
acquisition (competitive wins and M&A), improved infrastructure
utilization, and greater penetration of value-added services. Were the
shares to offer up another 10%-plus pullback, I would certainly be more
interested, but this at least looks like a credible hold for now.

You don't see many large-cap med-tech stocks trade for more than seven
times sales, but then you don't see many companies in that space logging
high-single digit sales growth and excellent margins/returns on capital
with a significant opportunity to grow sales and profits even further.
That's the basic story on Coloplast (OTCPK:CLPBY)
- a Danish med-tech company that has built an excellent business by
focusing on some decidedly un-sexy areas of healthcare like ostomy and
incontinence - and it creates a challenge for investors. While investors
can do well in supposedly "boring" med-tech stories like Becton Dickinson (NYSE:BDX) and Bard (NYSE:BCR), it's tough to ignore an eye-watering multiple even when the growth is strong.

Wednesday, October 7, 2015

The spinal surgery/spinal care market has been marked in recent years
by a few trends that run counter to how many investors historically see
the med-tech market. First, size hasn't proven to be such an
insurmountable competitive advantage, as up-and-comers like NuVasive (NASDAQ:NUVA), LDR Holding (NASDAQ:LDRH), and Globus (NYSE:GMED) have gained share at the expense of larger rivals like Johnson & Johnson (NYSE:JNJ) and Medtronic (NYSE:MDT).
Second, and apologies for the obvious pun, it seems to be one of the
few areas of medicine where insurers have found some backbone and pushed
back on pricing.

The subject of this article, LDR Holding,
strikes me as an appealing growth story in med-tech by virtue of its
commitment to doing things differently in the spinal space. Not only
does the company have a strong product in the fast-growing cervical disc
replacement market, but the company is also advancing technology in the
lumbar area that features less hardware and less collateral damage to
the patient. LDR Holding still has a difficult climb on its way to the
top, including not only competition with the likes of JNJ and Medtronic,
but also surgeon inertia, and the valuation is not obviously cheap, but
the balance between growth and valuation is at least promising enough
to look closer.

Tuesday, October 6, 2015

Investors don't really have to look forward many years to value
potential high-growth med-tech stories, but the consequences can be
severe when those companies disappoint. GenMark Diagnostics (NASDAQ:GNMK)
is certainly not the first or only diagnostics company to disappoint
investors with delays in its commercialization timeline, but the
confluence of a roughly half-year delay, ongoing progress at BioMerieux, and more risk aversion in the market has pushed the shares down about 40% since my last update.

The good news is that GenMark's ePlex system still compares quite favorably to systems from BioMerieux, Luminex (NASDAQ:LMNX), and Nanosphere (NASDAQ:NSPH)
and the multiplex molecular diagnostics (or MDx) market is still very
underpenetrated at hospital and reference labs. The bad news is that
BioMerieux has done really well with system placements and the hospital
diagnostics market is intensely competitive. GenMark does look
undervalued today, but investors are looking at a wait of several years
before there is meaningful revenue or cash flow and the risk here is
well above average.

I've liked NuVasive (NASDAQ:NUVA) for some time now, and the company's share price performance (up 12% from my last article in March, and up 48% since this article in the summer of 2014)
has given me no cause for regrets. While the company has seen plenty of
turmoil, including major departures of "C-suite" executives, the basic
plan of driving increased market share, increased overseas sales, and
better margins seems very much intact.

I continue to believe that
NuVasive has a strong future. Minimally invasive procedures should
continue to gain share within the large spinal procedure market, and I
see little evidence that NUVA is losing its edge in terms of innovation
and product development. The company does have the significant challenge
of striking the right balance between growth-supportive spending and
improved margins, but I think it has a credible plan to achieve both.
M&A remains a big wildcard, both in terms of who/what NuVasive may
buy and who may try to buy NuVasive.

A relative outperformer in a
tough market, NuVasive doesn't leap out to me as a cheap stock today,
but then again high-quality med-tech growth seldom sells cheaply. A
mid-$50s fair value still looks reasonable on an EV/revenue basis, but
the volatility of these shares may argue for a wider-than-average margin
of safety for new buyers.

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About Me

I started this blog as a way of archiving my writing for sites like Investopedia, as well as posting some thoughts on the markets, stocks, or whatever else strikes my fancy.
Feel free to email me.
You can reach me at tuonela (dot) fool (at) gmail (dot) com

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Information is taken from sources believed to be reliable but no warranty or guarantee is made with respect to accuracy.

Investing involves risk and requires proper due diligence. In no way should a reader should presume this blog represents personalized financial advice or is a substitute for proper due diligence. The author expects you to be enough of a grown-up to realize this.